Upjohn Institute working paper ; 15-243
This paper uses the historical episode of the near-elimination of commuting from the West Bank into Israel, which caused a large and rapid expansion of the local labor force in the West Bank, to test the predictions of the Heckscher-Ohlin-Vanek (HOV) mode of trade. I use variation between districts in the West Bank to test these predictions, and find strong support for them: Wage changes were not correlated with the size of the shock to the district labor force (Factor Price Insensitivity); Districts that received larger influx of returning commuters shifted production more towards labor intensive industries (Rybczynski effect); And on the consumption side, the data are consistent with the assumption of identical homothetic preferences, which, combined with the production results, supports the Heckscher-Ohlin-Vanek theorem on the factor content of trade.
W.E. Upjohn Institute for Employment Research, Early Career Research Award grant 14-147-13
INTERNATIONAL ISSUES; Globalization; Trade issues
Zimring, Assaf. 2015. "Testing the Heckscher-Ohlin-Vanek Theory with a Natural Experiment." Upjohn Institute Working Paper 15-243. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. http://dx.doi.org/10.17848/wp15-243